How much is a patient worth to a doctor?

With the increase of competition and declining profit margins every healthcare practice must be fiscally viable. Management of your practice with laser like efficiency is not something you learned in medical school and unless you went on to get your MBA or received a 2nd undergraduate major in business or marketing. Clearly, medical school isn't and should not be intended for teaching someone business practices and methods, or economics. Whether you want to or not, once you've graduated and start your own practice, you've instantly become two things: a business manager and a doctor. So, with this in mind, it's important to learn, stay up to date, and teach yourself on what keeps a business successful and growing, as well as what the economic value of your returning patient base.

Customer lifetime value (CLV) is the monetary value of each patient for as long as the patient is receiving healthcare services from your practice.[1] In today's dollars the profit you'll earn from that patient over their lifetime. If you are an internist and you generating an average of $500 per year from each patient with an average patient age of 58 and an average mortality rate of 78 that patient's CLV is $20,000. When you calculate what your CLV is, you'll instantly have the tools to help you with:

Acquisition: You'll have a better understanding of what you can spend to acquire patients.
Targeting: You'll know which patient segment and services deliver the most profit to your practice allowing you to focus more marketing efforts toward that segment or services.
Return on investment (ROI) : By using CLV in your ROI calculations for marketing campaigns, you'll have a much more accurate measure of campaign performance.
Patient retention: You can determine how much you can spend to profitably retain patients.
Single patient profitability: You can calculate the profitability of an individual patient.

First, figure out how long the average patient stays with you; this is the average lifetime of your patient and will help you calculate value. Next, calculate how often they come and see you and how long they go between visits. Next, you'll calculate the total profit you earn on their visits, the probability that they'll keep coming back to you, and the value of any future revenue they'll provide. After you get this information, you'll be able to see what's working and what isn't, set marketing budgets to target specific demographics of patients, and see what your return on investment is.

When IBM put this into practice, they re-allocated resources as needed and by doing so, saw a ten-fold increase in revenue without any significant changes in marketing investments. [3] Let that sink inñ millions of dollars were brought in, with simple changes and implementation of CLV-based approaches. Understanding CLV should improve your practice's bottom line and your ability to reach new patients!

To help you even further, there are a variety of internet-based healthcare management courses that help integrate medical education with business education. These types of courses contain curriculum and data that is vital to being both a successful business person, while also increasing the reach of your practice.

Understanding how to thrive as a practice will help you mitigate the dramatic rising costs of malpractice insurance, labor, employee benefits and technologies but most importantly enable you to meet your social responsibility to the public who depend on your skill and care when they come to you in their time of need.

Sources:

[1] Customer Lifetime Value http://en.wikipedia.org/wiki/Customer_lifetime_value Accessed

[2] Customer Lifetime Value. http://www.marketingmo.com/4-support-tools/how-to-use-customer-lifetime-value/ Accessed May 21, 2012.

[3] Kumar, V., Venkatesan, Rajkumar, Bohling, Tim, Beckmann, Denise. "Practice Prize Report & The Power of CLV: Managing Customers Lifetime Value at IBM." September 21, 2006. Accessed May 21, 2012. http://mktsci.journal.informs.org/content/27/4/585.abstract

Why is determining the economic value of each patient an essential success factor for your practice?